The U.K. logged its smallest September budget deficit since 2008, although the figure come in stronger than economists' expectations. Yet it seems unlikely for the Chancellor to meet his fiscal targets.
The budget deficit, excluding the temporary effects of financial interventions, fell by GBP 0.7 billion from a year ago to GBP 12.8 billion in September, figures from the Office for National Statistics revealed Friday.
Economists had forecast the public sector net borrowing (PSNB) to be GBP 13.5 billion. The government's tax revenues and expenditure increased 3.7 percent each.
The weak economic activity is weighing on the revenue generation capacity of the government. The low level of borrowing in September reflects improvement in the finances of local government and public corporations.
Excluding interventions, government borrowing for the April to August period was revised down by GBP 6.7 billion, suggesting that the Chancellor George Osborne is likely to overshoot his fiscal targets in 2012/13, but at a less-than-estimated level.
During the first six months of the fiscal year, the deficit excluding the Royal Mail pension transfer, rose to GBP 65.1 billion from GBP 62.4 billion last year. This dampened hopes of maintaining the deficit within the GBP 120 billion target.
Osborne is scheduled to present his Autumn Statement on December 5 after receiving revised forecasts from the Office for Budget Responsibility.
The Chancellor is set to miss his 2012/13 fiscal targets and the GDP growth forecasts for both the near and the medium-term look optimistic, IHS Global Insight's economist Howard Archer said.
Yet, it is probable that Osborne in his Autumn Statement will either have to acknowledge that he is unlikely to be able to start bringing down debt as a percentage of GDP by 2015/16 or announce further fiscal tightening measures, Archer added.
Including interventions, PSNB dropped to GBP 10.7 billion in September from GBP 11.4 billion in the previous year.
Further, data showed that public sector net debt came in at GBP 1.06 trillion at the end of September, equivalent to 67.9 percent of gross domestic product.
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